Weekend Market Commentary 12/24/15 – $RUT, $RVX

Big Picture:

Occasionally I get lucky and my predictions come true.  Hey, I have at least a 50% chance, right?  This was last weekend:

Who’s ready to build a case for a bullish move next week?! . . .

My conspiracy theory is that the Plunge Protection Team steps in this week and next to push the S&P to flat or green on the year.  Will it happen?  Who knows, but it’s certainly possible with the S&P less than 3% percent below zero for the year.  The Russell has a little further to travel to get back to flat and I think we’ll see RUT end the year with a negative return.

Let’s talk about what really happened though.  We’ve seen the Russell 2000 trapped in a range between 1100 and 1200.  As you’ll see on the charts below, that range is fairly obvious on the daily timeframe.  A week ago we were at the bottom of that range, going into a bullish period, and the media was far too bearish last Friday for the market to move lower this week.  Honestly, the only reason I’m concerned about my bearish 2016 prediction is that so many people are saying the same thing.  I’ll stick with my prediction unless we see the market get back above the 200 day SMA with some constructive price action.  Right now I see a lot of chop below a declining 200 day simple moving average and that doesn’t inspire me to go out and buy stocks.

One of the consequences of the low interest rate environment we’ve had for the past several years is that it’s forcing investors to look for yield and appreciation in other places.  Remember that returns are made up of two components:  Capital Appreciation (or loss) and Income.  Generally there’s a tradeoff between those things.  In other words, you receive higher income in “riskier” investments where Capital Appreciation (or loss) is less certain.  You’re being compensated for uncertainty.  You don’t get to “Pass Go and Collect $200.”  There is no free lunch.

In the past few years, we’ve seen the market driven higher and the yield on stocks has collapsed.  The yield on Bonds has also gotten really small and income investors don’t have a lot of options at the moment.  This is a horrible time to start looking for yield in conventional asset classes like stocks and bonds.  The price risk is high and the yield is low.  At the same time, if you’re a long only, long term investor, blindly buying and hoping is your strategy (if it can even be called that).  The stage is set to deliver some pain to the long only crowd and I’m planning to lighten up on Equity ETF’s I own very soon.

What’s a girl to do?  Look elsewhere.  People who are successful with active management, systematic investing, and options trading are at a huge advantage when the broad market declines.  Options provide a unique opportunity for traders and investors to generate higher returns, but that comes at the expense of more active management (than buy and hope).  However, simply using options will not provide consistently outsized returns unless you follow a strategy that works for you, you manage risk, and you seek to constantly improve yourself and the strategy.

I know I’ve said it somewhere before, but trading and life are both performance based endeavors.  We need to constantly focus on improvement in order to succeed.  And, no, every day won’t feel like a big success.  That’s okay, there’s tomorrow.

We’re approaching the end of the year and this is a great time to get introspective.  What have you done in the past year to elevate your trading and understanding of the markets?  Where are your strengths and where are your weaknesses?  What did you do right this year and where do you see opportunities for improvement?  Are you keeping a trading journal?  If not, start doing that.

If we want to get where we want to go, we need to step back and understand where we are and where we’ve been.  If we don’t know where we’re going, we’re already lost.

Market Stats:


Levels of Interest:

In the levels of interest section, we’re drilling down through some timeframes to see what’s happening in the markets.  The analysis begins on a weekly chart, moves to a daily chart, and finishes with the intraday, 65 minute chart of the Russell 2000 ($RUT).  Multiple timeframes from a high level create context for what’s happening in the market.

Live Trades . . .

The “Live Trades” section of the commentary focuses on actual trades that are in the Theta Trend account.  The positions are provided for educational purposes only.


The February CIB is open and chugging along.  The position is drawn down a small amount of money with the move higher this week, but there’s no reason for concern.  The trade is getting close to an upside adjustment point and I’ll be adding the 1160 Butterfly if we get there.  For more information on that adjustment, check out this video posted on Thursday.

I have a short RUT Put spread with March 2016 options that’s showing a good open profit.  I might be able to exit the trade if the market continues higher this week.

The Results Spreadsheet is updated and shows the open positions.  Note that there are two tabs in that spreadsheet now showing both 2015 and 2016 results and trades.  All of the trades mentioned are actual trades that I’ve taken.  There are no paper trades or fuzzy fills, they’re all real.

RUT.Feb Options Income Butterfly

Click here to learn about the Premium Course that covers the CIB Trade in Detail

Looking ahead, etc.:

This is a prediction free edition of the Market Commentary so we’ll just see how things play out this week.  The February CIB is sitting close to an upside adjustment point, but the market hasn’t quite made it there yet.  We’ll see how things shake out this week and adjust if necessary.

This is the last Market Commentary of 2015.  It’s been a great year from a trading standpoint and I’ve enjoyed meeting all of the readers who have gotten in touch.  In 2016 I’m planning to roll out some updates to the CIB Trading course and I’m also looking for ways to help more of you with the CIB and other income strategies.  Let me know if you have an interest in Coaching or more personalized help with your income trading.  I have a few ideas in mind, but it’s always better to hear what you’re thinking.  Send an email to info[at]thetatrend.com if you’re interested.

Thanks for a great year and for following ThetaTrend!

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